KLK earnings forecast to recover in second half of year

PETALING JAYA: Kuala Lumpur Kepong Bhd (KLK) is expected to see a slow recovery in company earnings by the second half of financial year 2019 (H2FY19), said PublicInvest Research.

The plantation conglomerate was not as badly affected by the current weak crude palm oil (CPO) price performance, when compared to its industry peers, as it has its oleochemical business to hedge against the upstream price exposure.

Going forward, the performance of the oleochemical segment is expected to be maintained at higher capacity utilisations and operational efficiencies.

The weak CPO price shall remain a key challenge to KLK’s plantation segment during H1FY19.

Over the next three months, KLK expects CPO prices to hover around RM2,100 to RM2,200 per tonne.

“On fresh fruit bunch (FFB) production growth, FFB production is estimated to surpass the 4 million tonne level for FY19, with an expected growth of 5% to 6%.

“This will be supported by an estimated 10,000 hectares of plantation area coming into maturity as well as improving yields, given its young age profile of 12.1 years for the existing mature area,” said PublicInvest Research.

While KLK has a sizeable planned capital expenditure of RM900mil, the group intends to spend only half of it.

An estimated 70% of capex will be spent on the plantation segment as it plans to replant a bigger area of 10,000 hectares in Lahad Datu and Riau, as compared to only 5,800 hectares last year, due to bad weather conditions and contractor issues.

This includes the construction of a joint-venture-owned refinery and jetty located in East Kalimantan. The remaining capex will then be allocated for capacity expansion for the oleochemical business, which is currently running at maximum level.

Meanwhile, KLK’s property segment is expected to perform favourably this year on the back of steady unbilled sales of RM121mil and the ongoing Hemingway Residence project in Bandar Sungai Buloh, comprising superlink terrace houses and semi-detached homes. The new minimum wage of RM1,100 per month, which takes effect this year, shall minimally impact the group’s bottomline by some minus 2%.

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